“We are living during the most extraordinary time ever in human history. Entrepreneurs are going to create more wealth for themselves and society over the next decade than we did during the entire 20th century. That’s the promise of exponential technologies.”
Peter Diamandis, author of Abundance: The Future is Better than You Think
Superior Investment Returns
According to Cambridge Associates’ 2019 “Private Investing for Private Investors” Research Report, endowments and foundations in the Top Quartile of long-term investment performance had one thing in common: a minimum asset allocation of 15% to private investments. Further, their data showed that endowments in the Top Decile of performance had allocations “well beyond 15% and, in many cases, north of 40%.” The Yale endowment, run by CIO David Swensen and one of the largest and best-performing endowments, now allocates over $6.5 billion (21%) of their $30 billion their endowment to venture capital.
Unlike stock-picking or fixed-income investing, Venture Capital is about innovation, building new businesses and creating new value. The growth of these enterprises drives large investment returns, and as an asset class, venture capital has returned greater than 15% annually for the last several decades and these return expectations are expected to persist. By its nature, venture capital investing is tax efficient as investments have longer hold periods. Additionally, venture capitalists ‘invest to exit’ so professionals invest at lower valuations and monetize portfolio companies when valuations are higher. This discipline helps avoid many of the behavioral finance traps that investors routinely fall prey to when trading in more liquid asset classes. Avoiding bad decisions leads to higher realized returns.
Positive Societal Impact
Humans by nature are engineers and problem-solvers, and the pace of technology development is rapidly increasing. Venture capitalists help refine these new technologies and bring them to more people for the benefit of society at large. Venture Capital is Impact Investing.
“We believe that business is good, because it creates value. It is ethical, because it is based on voluntary exchange. It is noble, because it can elevate our existence. And it is heroic, because it lifts people out of poverty and creates prosperity. Free-market capitalism is the most powerful system for social cooperation and human progress ever conceived.”
John Mackey, Founder of Whole Foods and Author of Conscious Capitalism
Substantial Community Wealth Creation
Venture capital creates incredible wealth for the entire region in which the portfolio companies are grown. With advanced technologies, these companies create new jobs and create new opportunities for founders, investors, employees, clients, suppliers, and community partners.
As Steve Case, founder of AOL and Revolution Partners, pointed out at the Rise of the Rest Florida Space Coast event, “entrepreneurs who start small businesses need to be respected and supported. But most new small businesses like restaurants, accountants and contractors, largely just replace existing small businesses and don’t create many net-new jobs. In contrast, venture-backed companies create new jobs that would not exist, while also bringing in wealth from outside the community. The new jobs and new wealth from venture-backed companies can have a massively positive and transformative effect on local communities.”
The Central Florida Tech Fund supports community wealth creation by donating a percentage of carried interest to the Central Florida incubators which launch and nurture technology start-ups.